Review – The Drama Of The Gifted Child

The Drama of the Gifted Child: The Search for the True Self (buy on Amazon.com)

by Alice Miller, published 1979, 1997

Recently I was discussing economic and social philosophy with some friends and the question came up about why certain philosophical ideas aren’t more popular or well-known if they seem to be more logically correct than the alternatives. We entertained a number of reasons why this might be but the one that stuck out to me as particularly weighty is the idea that the truth is deep, long and heavily nuanced and doesn’t make for quick, emotional soundbites. I made the quip, “Why is the economy the way it is? Do you have 5 years to study what you’d need to know to understand it?” followed by, “Why does the political system look as it does today? Do you have an entire lifetime to devote to studying all of human history?”

The other weighty suggestion that was offered is that there are many philosophies that cater to telling people what they want to hear (ie, an easy to accept reality) and only one that emphasizes telling it like it is (ie, a hard truth about reality).

I see echoes of these two notions in the opening of Alice Miller’s “Gifted Child”:

The damage done to us during our childhood cannot be undone, since we cannot change anything in our past. We can, however, change ourselves. We can repair ourselves and gain our lost integrity by choosing to look more closely at the knowledge that is stored inside our bodies and bringing this knowledge closer to our awareness. This path, although certainly not easy, is the only route by which we can at last leave behind the cruel, invisible prison of our childhood. We become free by transforming ourselves from unaware victims of the past into responsible individuals in the present, who are aware of our past and are thus able to live with it.

Most people do exactly the opposite. Without realizing that the past is constantly determining their present actions, they avoid learning anything about their history. They continue to live in their repressed childhood situation, ignoring the fact that it no longer exists. They are continuing to fear and avoid dangers that, although once real, have not been real for a long time. They are driven by unconscious memories and by repressed feelings and needs that determine nearly everything they do or fail to do.

This book asks the reader to consider two troubling ideas. The first is that they are likely to be carrying some emotional baggage from their childhood that originates with the way they were cared for by parents and other important adults in their lives. The second is that they are likely to transmit this baggage to their own children (if they have any) and other important, intimate relationships if they don’t find a way to come to terms with it beforehand.

Like the consideration made about the popularity or penetration of certain economic and social philosophies, these ideas are troubling for most people to accept because it forces them to revise their current understanding of the relationships they have with important people in their lives, it forces them to take responsibility for the course of their lives and their choices and give up the perverse safety and security of seeing life through the eyes of the helpless victim and it forces them to concede that the present is not a unique or isolated moment pregnant with infinite possibilities, but rather one moment at the end of a string of moments stretching back into the earliest reaches of human history in which possibilities exist but are limited by certain choices and events which took place in the uncontrollable past.

There is of course great freedom in choosing to explore these troubling ideas but they come at the cost of a grave responsibility that few, based on my practical experience, seem willing to bear.

To find this freedom, one must seek out “the lost world of feelings.” Human infants are entirely dependent upon their adult caretakers for their survival, unlike most other animals who, while weak and undeveloped, are nonetheless able to move around, seek shelter, find food, etc., on their own almost immediately after birth. For a young human, being ostracized or unloved by ones parents is a death sentence. Therefore, the human psyche is wired at birth to prioritize adapting to the parents’ emotional needs over fully developing its own.

If certain emotional expressions or behaviors prove to be problematic for the relationship with the parents, the human child will work to repress and hide that part of themselves. They will disown it and their personality will become dichotomized into “me”, the feelings and behaviors and characteristics I acknowledge and accept because they have demonstrated value with my parents, and “not me”, the feelings and behaviors and characteristics I deny possessing or experiencing because they have been a source of conflict with my parents, on whom I depend for survival.

This is what Miller means when she talks about searching for the “true self.” The irony, however, is that

the child does not know what he is hiding.

That is, it is not as if the child knows what his true self is and isn’t and is lying to himself and others about who he really is. It is more like, he has shoddy vision and can’t see a focused image of himself in true detail, or else he has a map of himself leading to the buried treasure of his own reality but he doesn’t know how to read the map and therefore doesn’t know where his self is or even what he’ll find when he gets there. Every now and then this person might get a glimpse or a sense of their true self in a particularly emotionally charged moment but really all they’re experiencing is the anxiety indicating the existence of repressed and disowned selfhood, not a look at what is missing.

To heal, these emotions must be encountered and experienced. Further, painful emotions must be resolved by tracking down their genesis in early childhood experiences. Memories and relationships with respected and important adult caretakers must be studied and re-evaluated through the more objective eyes of an independent adult rather than the way they were first constructed by a subjective and immature child. This not only allows the adult of the now to be released from the terrors of the former child but it can enable the adult to have new modes of living and doing:

Rational, constructive action depends not only on the intactness of our intellectual faculties, but also on the extent to which we have access to our true emotions.

[…]

the inescapable conclusion is that for people to be able to organize their lives, they must have access to their emotions.

This is one of the many and for me, the most important, takeaways from this book. It is not enough to rationalize about a choice and a potential plan of action. To actually develop an impetus to act requires an emotional experience. Adults who repress certain parts of their emotional selves due to childhood traumas become incapable of acting in certain areas of their lives. They become procrastinators, perfectionists or otherwise evasive in the area of making a decision, acting on it and then sticking with it.

By finding and integrating one’s lost world of feelings, one has the opportunity to become active and empowered in new areas of one’s life that were otherwise mysterious, frustrating or dormant.

One question that comes up for some people as they consider all of this is, “But why did my parents ever treat me in such and such a way?” Using some of the memories and recollections of a famous cultural writer as an example, Miller says,

like so many gifted children [he] was so difficult for his parents to bear not despite but because of his inner riches. Often a child’s very gifts […] will confront his parents with conflicts that they have long sought to keep at bay by means of rules and regulations. These regulations must then be rescued at the cost of the child’s development.

The parents’ childhoods involved repression as well. For their own survival they learned to disown parts of their emotional experience or certain of their behaviors that caused trouble with their parents. They rationalized this turn of events and created rules for living that would help them avoid these perceived dangers. And then when they had children, these rules and procedures came into question by the existence of the innocent child. And so a new round of repression is started.

The only way the cycle can be broken is for the adult to make the painstaking effort to connect with his child self and understand what happened and how it has impacted him, and then he must choose to live his life differently with that new awareness of his past. This is hard for many to do because

What they do not see, because they cannot see them, are the absurdities enacted by their own mothers when they were still tiny children.

Another powerful idea contained in this book is an explanation of the appeal of irrational ideas to adults with traumatic childhood experiences. The trauma of childhood is itself irrational– there is no “reason” for any child to be abused or neglected by those who brought it into the world, and save those who are simply unlucky in having some external misfortune befall their family (ie, the child is made an orphan when the parents die unexpectedly), there is no excuse or justification the adults could offer a child as to why they are being treated as they are. For survival reasons, the child must make a place in their psyche for irrational ideas to exist because in doing so they “close the loop” on the irrationality and make it seem rational. “Some things just don’t make sense” is a way to make sense of things that don’t make sense.

When this space for irrationality exists, adults can become wedded to irrational ideas and beliefs, such as political ideologies, abusive social relationships or supernatural superstitions. On one hand, they lack the ability to rationally resist these ideas and beliefs because they are willing to accept that not everything has to make rational sense in their lives. On the other hand, they may positively identify with the claims of these ideologies because they appeal to their own experiences or sense of self as a victim who is oppressed by others, that is, they offer a way to feel like they’re getting even. On this point Miller is worth quoting at length:

Oppression and the forcing of submission do not begin in the office, factory or political party; they begin in the very first weeks of the infant’s life.

[…]

Political action can be fed by the unconscious rage of children who have been misused, imprisoned, exploited, cramped and drilled. This rage can be partially discharged in fighting “enemies”, without having to give up the idealization of one’s own parents. The old dependency will then simply be shifted to a new group or leader. If, however, disillusionment and the resultant mourning can be lived through, social and political disengagement do not usually follow, but our actions are freed from the compulsion to repeat. They can then have a clear goal, formed out of conscious decisions.

Once our own reality has been faced and experienced, the inner necessity to keep building up new illusions and denials in order to avoid the experience of that reality disappears. We then realize that all our lives we have feared and struggled to ward off something that really cannot happen any longer; it has already happened, at the very beginning of our lives while we were completely dependent.

The term “fighting yesterday’s battles” comes to mind when thinking about this irrational space.

While Miller’s analysis applies to any child and any adult experiencing emotional pain and depression (whether they’re aware of it or not!), the book is especially focused on the plight of “gifted” children because of the uniquely problematic experience they can have in this area due to their talents and abilities. Not only do “gifted” children tend to experience these emotional troubles more deeply,

many people suffering from severe symptoms are very intelligent

but they also tend to experience these troubles uniquely through feelings of grandiosity and contempt.

Grandiosity is the concept of identifying one’s personal value as a person with one’s special talents and abilities. One’s greatness isn’t just a part of one’s self, it IS the self. But this complicates the emotional life of the gifted child because it is inevitable that not every part of themselves is grand. There exists then another dichotomy, wherein all the parts that are grand (which may be very few and overall represent a quite limited part of the total person or experience of self) are “me”, and all the parts that are normal or weak (which is likely then the majority and the wider experience of self) are “not me”. And if my parents love and care for the grand gifts I have but dislike or don’t know how to deal with the unexceptional aspects of my self, then

we remain at bottom the one who is despised, for we have to despise everything in ourselves that is not wonderful, good, clever… we despise… in short, the child in ourselves and in others.

[…]

“Without these achievements, these gifts, I could never be loved. would never have been loved.”

An emotional experience that often goes hand in hand with grandiosity is contempt.

The function all expressions of contempt have in common is the defense against unwanted feelings. [ie, despising what is not grand about oneself]

[…]

Once we are able to feel and understand the repressed emotions of childhood, we will no longer need contempt as a defense against them.

[…]

Contempt as a rule will cease with the beginning of the mourning for the irreversible that cannot be changed… it is, after all, less painful to think that the others do not understand because they are too stupid.

Gifted people often experience contempt for others as an expression of insecurity about the repressed parts of themselves that are not part of their gifts. Unable to have empathy and kindness towards themselves in these areas, they become impatient and hostile towards those reminders of their own weakness that they see in others.

Sadly,

hating and offending an innocent person, using him as a scapegoat, can only strengthen the walls of our inner prison of confusion, isolation, fear and loneliness: it cannot free us.

And the most innocent person of all, the most unfair scapegoat a person can choose in this drama, is their child self. Whether these ideas are new or familiar, I encourage anyone reading this to consider the implications of the ideas contained in this book not as if they describe a set of generalized human experiences but rather as if they describe something specific and personal to the reader himself. If this book’s message can be taken to heart and internalized, it can be the jumping off point for great personal change that will ultimately resolve itself in what Miller refers to as a “healthy self-feeling”:

I understand a healthy self-feeling to mean the unquestioned certainty that the feelings and needs one experiences are a part of one’s self.

 

How To Learn How To Invest

“How do I learn how to invest?”

I don’t get asked this often, but I do get asked often enough that I should have a resource on this topic on this blog. My recommendations are qualified as follows: first, when people ask me how to get started with investing, they usually mean public (US) equity markets, not real estate, commodities or venture capital so that is what I am responding to; second, when I think of investing in public equity, I think of the “value investing” approach, there are other ways to invest but I don’t understand them or I do not trust them so I don’t recommend them; third, I try to form a recommendation based off of what I wish someone had told me when I had this question, so it may fit a person better or worse based on their previous knowledge, experience and intelligence; fourth, I think people are usually looking for reading material when they ask this question and I think that’s the best way to learn what needs to be learned so that is what I recommend; finally, I have struggled for over ten years with DOING rather than THINKING/READING, so my strongest recommendation is to put this knowledge and the concepts learned into practice almost immediately and start learning through action as soon as you can– it’s the only way to build the confidence I mostly never had.

I think there are a few key things a person needs to get comfortable with in order to build a solid foundation as a student of investing practice. Personal discipline, inspiration and technical know-how are the required ingredients.

Personal discipline is about generating meaningful savings. Without savings, there is nothing to invest. And without a habit of saving, an investor will have difficulty weathering the inevitable setbacks in their portfolio, taking advantage of periodic market tumbles with dry powder and resisting the temptation to sell at the worst possible moment to fund a lifestyle need or unexpected emergency. To be a great investor, I am convinced, you must be a great saver. Capitalism is built on savings, so by learning how to save you are not only building a bright financial future for yourself but helping to tend to the foundation of modern society.

Inspiration is about seeing the end game, knowing what is possible and staying motivated through the hard work and daily grinding that are the meat and potatoes of actual investing work. By studying a master you can understand not only what it takes but what to expect from your own results. And having realistic expectations is important in a business where you are your own worst enemy and the most important entity to manage.

Technical know-how is about the mechanics of investment analysis. Having a rudimentary knowledge of accounting as the “language of business” so that you can intelligently read financial statements (the reports public companies issue about their operations) and understand what is going on, and understanding what great value investors look for when analyzing an investment opportunity in terms of safety and calculated return are the actual tools you need to “do investing.” But trying to get this information before you are disciplined about saving and inspired to pursue the hard work of investing is surely putting the cart before the horse.

The meta lesson here is patience! Something all great investors need to succeed.

For the dedicated student, I have five resources I strongly recommend to methodically take oneself through these concepts. Here they are in order.

Savings and personal discipline

The first book is The Richest Man in Babylon, by George Clason. The book is a collection of lessons about how to save and the benefits of saving in the form of parables of wisdom from ancient Babylon. The narrative is extremely dated and not Politically Correct but that is exactly what makes what might otherwise be a dry subject quite wondrous and entertaining to read. When you read The Richest Man your life will change if you previously haven’t been a saver or didn’t understand how to save; for those who do, it will strongly reaffirm what you do and help you connect how critical it is to your long-term investing plan.

The second book is The Millionaire Next Door: The Surprising Secrets of America’s Wealthy, by Thomas Stanley and William Danko. Millionaire is a statistical study of America’s self-made millionaires– how do they live? what are their habits? what are their families like? how do they make key financial decisions in their life? You will see the importance of savings and frugality as a common theme. But you will also learn that millionaires don’t live millionaire lifestyles by and large and they certainly don’t build their lives around competing with their neighbors on consumptive habits. Because investing is a long enterprise where small advantages accrue over time (and small mistakes and expenses snowball just as easily), a person who fully integrates their desire to live life patiently and without excess will have a much higher chance to be successful as an investor.

Inspiration

Okay, you’re saving money and you’re not going to let your spendthrift neighbors new car in the driveway distract you from your mission. You’re not even going to WONDER how he affords it– you know he can’t and that it doesn’t matter a wit to how you do as an investor. You’re ready to be inspired, and who better to do that job than the arch-master of modern investing, Warren Buffet? It’s time for your third learning with Buffett: The Making of an American Capitalist, by Roger Lowenstein. There is a second Buffett biography which I think is superior in a number of ways, but that is for later on. You can obsess over those details later. Lowenstein is enough right now and he still tells a good story– who was Buffett? how did he do it? what was his philosophy of investing? and what were the key episodes in his investing career that made him his billions? Reading this Buffett bio will not only make your eyes twinkle as you dream of your own pot of gold at the end of the rainbow, it will clue you in to the fact that there might be some rain along the way.

Accounting

To analyze companies on the stock exchanges, you must be able to read the financial filings they make with securities regulators. In the US, these are called 10-K (annual) and 10-Q (quarterly) reports. And these reports are typically not glossy, photo-filled corporate feel good story books nor would you want them to be– they are filled with numbers, tables and charts and they’re primarily related via accounting conventions. To understand what these financial statements are saying, you should read your fourth book, The Accounting Game: Basic Accounting Fresh from the Lemonade Stand, by Darrell Mullis and Judith Orloff. The book walks you through the accounting for a simple business, a children’s lemonade stand. You won’t be ready to audit a company or step in for your CPA friend on the weekends, but you don’t need to, you just need to understand what the difference between the three major financial statements are, what revenue is and where profit comes from, how to tell if a company has a health financial picture or otherwise, etc. That’s enough and this simple and “childish” book can get you there.

Investing mechanics

You’ve learned how to save and how to focus on yourself rather than your social circle’s economic position. You’ve read about how the grand master became the grand master and gotten a rough idea of what investing is and isn’t. And you’ve gotten the basics of accounting down so you can actually understand what you’re looking at when you peer under the hood of a public company you’re considering putting your capital to work with. But how do you actually find, analyze and make investments?

Your fifth resource is The Essays of Warren Buffett: Lessons for Corporate America, by Laurence Cunningham. This is a handy resource for the collected writings of Buffett on a variety of topics related to investing and corporate value. You can learn about what makes a business well-managed or poorly managed and from there you will be a lot less dangerous to yourself when you actually try to invest in one of these companies.

However, there is a cheaper and even more rigorous way to drink at this trough. Try Warren Buffett’s Letters to Berkshire Shareholders (1977-present) available at no cost at the Berkshire Hathaway website. Berkshire is Buffett’s public holding company and the accumulated legacy of his investing activities since the early 1950s. In these letters he lays out his principles and explains the happenings in his business in enjoyable detail and with meaningful repetition. By the time you finish these 50+ years of letters you will have a better knowledge base of how to invest successfully than 95% of market participants, of that I am confident.

And you can build on it still further by hunting down the private partnership letters Buffett wrote prior to the Berkshire days (1950s-1976), by reading the Berkshire Hathaway “Owner’s Manual” and by reading the two special letters from Buffett and his partner, Charlie Munger.

If you read, re-read and understand all of that and then actually apply it, you have learned how to invest. Now all you have to do is do it!

Shortcuts

While the recommendations above don’t represent the ten plus years I’ve devoted to studying this topic in totality, I do think they cover 80% of the conceptual ground. And it bears repeating, they cover 0% of the activity ground, to cover any of that you need to start investing, even if you don’t have 100% confidence and might make a few (small, at this point) mistakes.

For the other 20%, I have recommendations on intermediate and advanced level readings that I would not make to any but the extremely motivated or the deathly curious. And beyond those titles, I recommend nothing but a course of vigorous doing. No amount of reading can ever make up for the practical experience of attempting to find, analyze and invest in actual companies.

But some people who have asked me about this topic have, after having the above laid out for them, complained they do not have enough time. You can guess what my reaction is in that case– if you don’t have time to sharpen your axe, you are unlikely to fell any trees. And more likely, you will trip on the damn thing on the way to the forest and mash up your leg.

That being said, I realize the subject can seem intimidating the way I’ve laid it out. And I think that it’s important people get the best chance to prevent the commission of grievous errors in this domain as possible if they’re determined to act despite my apprehension. I have given some thought to a condensed list of super-accessible readings that even those short on time and discipline can get through on the way to the nirvana of being an investor.

The Quick Way To Learn About Investing

If you’re determined to jump right in to investing, there are two things you need to know:

  1. How to save money
  2. Whether you want to be a passive index fund investor, or an active value investor

I still think it’s critical to understand the importance of saving and how to do it. Without saving, there is no investing and I think a person who doesn’t understand this early on is going to suffer for it years later, especially if they are retirement-oriented.

As to the second question, it’s a personal decision determined by available time, motivation to learn and act and also expectations about returns. For people who just want to watch their savings grow faster than their bank account would permit but who otherwise don’t want to treat investing like a business or even a hobby, index investing is the way to go, all caveats aside. And if you’re going to go that route, you need to understand how to minimize your costs and (ironically) minimize your own involvement so you don’t make bad decisions about buying and selling at the worst possible time.

And if you think you want to take a more hands-on approach and really be an investor rather than just an sophisticated saver, then you need to get a quick tutorial on how an investor thinks about what he’s trying to do which you can immediately then begin applying as a framework to potential investments you find.

My quick path then has three primary readings:

  1. The Richest Man in Babylon, by George Clason
  2. The Little Book of Common Sense Investing, by John Bogle
  3. The 2013 Berkshire Hathaway Shareholder Letter, “Some Thoughts About Investing” section until the row of asterisks on page 21, by Warren Buffett (free PDF)

TRMIB is still my top pick for learning about saving and how to do it. The Bogle book I think is all you need to understand what index investing is, how to do it safely and whether it is right for you. You could immediately begin an index investing program after reading that book if that’s what you wanted to do.

Rather than a book, for learning the basics of value investing, fast, I recommend the essay embedded in Buffett’s 2013 shareholder letter. It is his all-time best description of the value approach and what a value investor is trying to accomplish and therefore what he looks for in an investment. If you read that and don’t get what he is saying, start your index strategy. If you do, you’re off to the races and surely will be inspired to read and do more. But the argument he lays out is robust enough to allow you to do some immediate qualitative heavy lifting if you start looking at individual companies to invest in. It’ll be pretty clear to you if they company offers an opportunity, at current prices, that jumps Buffett’s hurdle.

The Third Way

In economic history, the socialists who realized their dreams of a planned communist economy could never work switched tactics and advocated a “Third Way”, the private-public regulated market economy. Of course, it turned out to be just as nefarious as the pure communist economy in its own way and the point is there was no real Third Way available. There was only the market economy or various flavors of central-planning chaos.

People reading this who don’t want to read 5 books and don’t want to read 3 books/essays but who still want to learn about investing might be wondering, “Oh, but isn’t there a Third Way?” Actually, in this case there might be.

Recently I reviewed The Acquirer’s Multiple: How the Billionaire Contrarians of Deep Value Beat the Market, by Toby Carlisle. This might be the best option as far as a one-stop shop for a total neophyte goes. The book assumes you know how to save and are ready to invest. From there, it offers a simple metric (the Acquirer’s Multiple) for identifying interesting investment opportunities. It explains why the metric is an indicator of value and it walks through several historical-biographical case studies of other famous investors showing how they succeeded with an opportunity indicated by this metric. The book does a great job of explaining (by both showing and telling) why value “works”, ie, the concept of mean reversion. I think these two pieces help to inspire a new investor to feel confident and motivated about looking for their own opportunities.

The book has a bias toward action. A person new to investing could read it and then immediately run a screen of low multiple stocks and begin vetting them for an investment. And it has a helpful checklist at the end of the book to improve your overall decision-making process.

If someone insisted on one book and was clearly indicating they weren’t planning to go deep and just wanted to get busy, I think they could do a lot worse than reading this book and I am not sure they could do better because I can’t think of anything else that is simple and easy to understand (written without technicality), covers the basics of value as an approach and offers a practical tool for putting the philosophy to work.

While I think it’s really dangerous to try investing without reading or understanding anything, I also know from experience it’s dangerous to overthink it and fail to act. Following the 5, 3 or 1 item approach outlined here I think gives the interested student some basis to begin acting knowledgeably and to arrange their further experience and study into a meaningful structure for organizing thought.

Review – 1, 2, 3… The Toddler Years

1,2,3…The Toddler Years: A Practical Guide for Parents and Caregivers 3rd Edition (buy from Amazon.com)

by Irene Van der Zande, published 2011

A friend had recommended “The Toddler Years” as a resource for continued learning and practice with regards to piloting RIE from infancy into childhood. And indeed, the book is similar in format, structure, tone and event content to works we’ve read previously and enjoyed such as Your Self-Confident Baby and Dear Parent: Caring for Infants With Respect. Much of the material and insight in the book comes via childcare practitioners at a day facility in Santa Cruz, CA and the book has a preface by Magda Gerber. This is definitely “RIE-approved”.

As I was reading this book and noticing the similarities, I asked myself, “Why do we do what we do [as parents]?” When we first learned about RIE and NVC, it was easy to get overwhelmed with all the new DOs and DONTs in terms of behavior and lose sight of the goal. The goal is not to follow some set of rules, arbitrary or otherwise, or even to be Good Parents as some kind of exercise in living an ideal, but to live our lives in relation to our children a certain way– to treat them with the kind of respect we’d hopefully treat any other adult.

As I was reading the scenario-specific counsel in this book, I realized that “what to do” in any of these situations shouldn’t be mysterious. We can get to the answer quite easily by inverting the situation and asking ourselves what we’d do if an adult acted like a child? How would we treat that adult? With condescension, disgust, frustration, anger or worse, violence? Or would we practice patience, understanding, offer our assistance and respect their needs and choices as much as we could?

That being said, these lessons about commonly occurring parenting dynamics are indeed helpful pre-practice and may result in the thought processes and related behaviors becoming more intuitive and flow-y rather than flustering or rehearsed.

Choice

Just like all of us, toddlers are happier when they have some control over their lives. This also makes it easier for them to accept what they don’t have a choice about.

The first act of a child’s life, being born, is a set of circumstances the child itself had no choice in creating. Nor is the child aware of its lack of choice, in this situation or any others, for some time after birth. Nor even is the child capable of exerting any influence over the course of its life, via choice, even if it was aware of the choices that existed.

But over time the child’s life becomes increasingly defined by choice both in terms of awareness and in terms of action. It is no wonder then that “choice” is an important theme in the development of the life of the toddler and that we as parents and caregivers can render a great service to our children by giving them choices whenever we can and being understanding with them when they react against the situations where they lack choice but might like to have one for whatever reason.

One way to offer choice is via closed questions, that is, “Would you like to have an apple for your snack, or a banana?” versus “Would you like a snack?” The reason to offer closed questions is because it encourages the child to make choices we can live with. It can be easy to get bogged down in the subtle reality of how little toddlers have to choose about their life at times– we know they NEED a diaper change but they don’t WANT one, etc. Using closed questions frames the choice around taking a positive action the caregiver believes is necessary and hopefully avoiding fighting and antagonism over choices that don’t exist.

Similarly,

When there is no choice, we need to be careful not to offer one by mistake.

Saying, “We’re going to Grandma’s, it’s cold outside, do you want to wear your jacket?” might elicit a “No!” and a frozen child, when what we really meant was to offer a closed question such as, “Would you like to put your jacket on yourself or would you like me to help you put it on?”

Feelings

Spend a lot of time giving children names for their feelings.

As adults, we have a certain awareness of our feelings such that we can distinguish one feeling from another, the intensity of the feeling, its source and perhaps most importantly, we can label our feelings in order to communicate about them more clearly. (This is the ideal with adults, anyway… any student of NVC is aware of just how limited even many adults’ capabilities are in this regard!)

With young children it is different. Feelings might seem to come from nowhere and shock or surprise. They might seem uncontrollable. One kind of feeling of a high intensity might seem similar to that same feeling at lower intensity (ie, just “good” or “bad”, pleasant or unpleasant) and there is most of the time no sense of the character of a feeling and the name it carries. Talking about feelings with young children and repeating the names of the feelings we observe them experiencing can help a toddler start to gain mastery and awareness of their feelings.

Children need to understand their feelings. They need to know their uncomfortable feelings are just as important as their pleasant feelings. By accepting these feelings, we teach our toddlers to accept themselves and each other.

The goal of many parents and caregivers seems to be to raise a child who only experiences good feelings. Feelings of pain are warded off, “Oh you’re alright, nothing happened!” as are feelings of shame or fear, “Be a big boy, don’t cry!” Perhaps the motivation is to provide children with that ideal experience, “childhood innocence”, as long as possible and to protect them from reality which is sometimes disappointing, frightening, infuriating or just plain unfair.

But accepting some feelings and rejecting others leads to self-repression and a certain kind of schizophrenia. There is the “me” that has feelings which are acceptable to the adults and caregivers in my life, and there is the “not me” that has feelings which make them uncomfortable, which seems to pop up in my life at the most embarrassing times. Helping children to experience all their emotions as equally valid allows them to build confidence in the unity of their self.

Limits

Limits can be stated in firm but respectful words. We can do this by using what is called an “I” message. That is, instead of saying “You must do this” we can make it clear that we are speaking for ourselves:

“I want you to be gentle.”

“I need you to help me get your clothes on.”

“I don’t like it when you run away.”

We can talk about what the child is doing rather than using blaming or labeling words.

Some people find parenting with respect challenging because they equate it with a kind of “anarchy” and the giving up of their authority even in matters of safety or in enforcing their personal preferences in their own home or life. It can be hard enough to adjust to living with a messy spouse, for instance, now a diabolical two-year-old is supposed to reign over me?

This is a false dichotomy. Respect is a two-way street. And imperative to having respect and giving respect is to be clear about who is respecting what. Using the “I” technique makes it clear that limits have to do with individual needs and don’t involve arbitrariness or authority.

Building Confidence

Children who are confident in their ability to learn through practice are more likely to grow into independent people… making things happen rather than waiting for things to happen to them.

We learn to be action-oriented in our lives or we learn to wait for a rescue that isn’t coming.

There are two models of failure and its significance that humans can internalize according to recent psychological research. One model is failure-as-feedback, in which failure indicates that an action was not performed properly to achieve the desired result with the possibility that it could be performed properly with further practice.

The other model is failure-as-wrongness, in which failure indicates that a person is not appropriate to a task at hand in some existential way and their inability to achieve success in this instance is evidence of their wrongness or lack of completeness as a functioning person.

It is imperative that children have opportunities to practice actions, to experience occasional failure, and to be encouraged to try again in order that they build confidence in themselves and in the model of failure-as-feedback. Without internalizing this principle, they are apt to experience a life of growing self-doubt and confusion on a fundamental personal level.

Presentism

Toddlers live in the here and now. Yesterday is ancient history and tomorrow might as well be next year.

How wonderful that toddlers can remind us that the present is all we ever have! As adults it is so easy to live with regret, or to drift through the present ever-anticipating the future.

Of course, they may serve us these reminders in unpleasant ways with their seeming impatience, or their repetitious requests or insatiable demands for things they’ve already been given before. But it’s important either way, for our own sanity and enjoyment of life, that we remember that they only behave this way because the present urge is the only one they know at this moment in their life.

Sleep

Give warnings before bedtime so the child has a chance to finish playing.

Not only do small children seem to sleep fitfully at times, but they also go to sleep fitfully. And sleep seems to creep up on them and snatch them when they aren’t expecting it. One moment they are playing with their toys and screeching with gaiety, the next they are rubbing their eyes and ears and about to topple over with sudden onset of wooziness.

Adults can help children anticipate the future, and their own need for sleep, by following bed time rituals which include buffer time and light warnings that sleep is coming and it is time to begin winding down.

The “S word” – Sharing

Toddlers do not learn to share by having grown-ups make them do it. Having to give up a toy makes a toddler feel angry, not loving.

Why do adults think sharing is so important? Is it simply mindless repetition of their own childhood experience? Is it a social or cultural imperative tied to recent historical developments? Is it a way to feel equal while ignoring that we are not?

Sharing is not in the vocabulary of small children although, curiously, property rights are! The individual child’s property right, at least. While there are many ways to respect small children by thinking of them and treating them as capable of something they have not yet mastered, sharing seems to be one of those things that does not lend them respect or enjoyment when it is expected of them.

In our home we don’t care for sharing as a principle. So avoiding the “S word” will be relatively easy for us!

Tantrums

If a toddler finds out that having a tantrum is a way around our limits, the child may start throwing tantrums all the time.

Another idea that is interesting about tantrums is that they belong to the child, not to the parent. It is easy for the adult to assume a tantrum is a demonstration of a critical failure in their parenting, rather than a critical failure in the emotional regulation of the child. Of course they often come at the most inopportune times as well, right before trying to leave for an errand, or out in public amongst a bunch of gawkers.

Even during a tantrum, the child is experiencing an emotion they are truly experiencing and it’s worth it for parents and other caregivers to practice patience and understanding in these moments, validating the emotion even if it is disagreeable and talking through it with the child, along with giving them space to express their emotion, to exhaustion if necessary.

Toilet time

The time to start toilet learning is when our toddlers show signs of being ready, like:

  • having dry diapers for longer periods of time
  • letting us know that they’ve pooped or peed in their diapers
  • showing interest in sitting on a toilet or potty chair
  • wanting to wear underpants
  • disliking wearing wet or soiled diapers

The book does not call it toilet “training” for a reason. This is not a rote memory behavior or even a reflex. It requires conscious effort and it has a psychological root. Being ready to use a toilet for elimination is an egotistic decision and like many other similar experiences in life we can help the child by waiting until they’re ready rather than expecting to do something they’re not yet capable of or don’t see any benefit in themselves.

Eating and weaning

Toddlers will eat when they’re hungry, but might not eat much.

Toddlers need to eat more often than we do. Their stomachs are smaller.

Toddlers like to have choices.

Meals are served outside whenever the weather permits.

One thing I thought could’ve been added in this section is the observation that sometimes toddlers will eat quite a bit! In fact, too much and too fast if you keep putting food in front of them. We are learning to offer one piece of food at a time and waiting until our Little Lion requests more (with reaching, grunting and looking for the food). Even then, we try to pace things as his belly is bound to fill up quicker than his brain gets the signal that it’s time to stop.

Successful parenting

It helps to remember that, just as there are no perfect people, there are no perfect parents or children. There are no perfect families either, even if they look that way from the outside. It’s not our job to be perfect, but to do the best we can.

I’ll let that one settle in on its own.

It’s healthy for our children to see us having interests besides our families.

It’s also healthy for our children to see us acknowledging their needs without actually fulfilling them, instantaneously or at all. New parents often forget that it’s okay to use the bathroom, even if it means a crying child. And these kinds of over-permissive decisions can extend beyond those first few months to picking the child up whenever it beckons, interrupting a rhythm or flow in some household chore to immediately respond to the child’s request, etc. The child isn’t always going to get what they want in life and it’s okay to model that now, in toddlerhood. Just realize you may hear a bit more crying and whining as a result of your decision.

Being polite by acknowledging people socially is an adult need, not a child’s.

Teaching children to wave hello and goodbye, to high-five, to smile or “be nice” to strangers who greet them and to say please and thank you may seem cute but it is not necessary and it may even be unsafe (why undermine a child’s instinctive apprehension of strangers?)

Some people who do not understand that children are individuals and not objects can find it frustrating and demeaning to deal with an “aloof” child. Why is it so important to this person to be acknowledged by a tiny toddler who is more interested in drooling over their toys? What does their need for acknowledgement and validation-in-existence truly imply?

Guilt keeps us looking backward and feeling bad about what we should have done instead of looking forward and feeling good about what we’re going to do next.

This idea is tied to the failure-as-feedback model. If we are always learning and growing, as the toddler is, and we want to model this as normal, we would do well to focus on what we’ll do next and not to obsess about the past.

Enjoying your child

Childhood passes quickly. And it never comes back. “They won’t need me as much as they do now.”

A truly bittersweet thought. To acknowledge that the pain, discomfort and disruption of being always needed is ephemeral; but so too is the joy, confidence and excitement of being the center of a young person’s world.

4/5

 

Review – Essentialism

Essentialism: The Disciplined Pursuit of Less (buy from Amazon.com)

by Greg McKeown, published 2014

This past year I’ve been exploring topics related to the concept of mastery. It is so tempting for me to try to be interested in everything I come across and consequently it’s a real challenge to be selective and commit to being a master of only a few things. Essentialism was recommended to me by a friend and it’s a great concept inside of an okay book.

The key to essentialism, which is a combination of the ideas of prioritization and mastery, is to be conscious of tradeoffs. One has to develop a habit of asking, “What will I NOT do in order to get this done?” Progress in one aspect of life can only be made at the expense of denying progress in all the others.

The author teaches at Stanford and implements the empathy-based design thinking approach in his essentialism advice. In this case, he offers several techniques for building empathy with yourself– to gain clarity about your purpose, to acknowledge physical limitations (primarily sleep) necessary to making sustained progress and to engage in free-spirited play to unlock creative thinking and avoid self-reproach. And like a design thinker, he advocates a kind of Minimum Viable Product approach to making progress on your priorities. Don’t set your sights on one big effort, or assume that you can define the endpoint of your efforts before you get there; start with a rough idea of where you think you want to go and think of the next tangible iterative step you could make to progress. In so doing you’ll develop confidence and motivation to keep moving forward.

One thing I enjoyed most about the book were the numerous pithy quotes at the masthead of each chapter and sprinkled throughout the text. I might copy a few of them into the blog after I finish writing this. On the other hand, the book is also another disappointing amalgamation of pop business and productivity stories, name-dropping and “stuff my friends did that I thought was worth including in my book” that deny this book a chance to enter the pantheon of classics, aside from the fact that it really offers nothing new on this subject other than the marketing of the idea.

The four-part structure of the book, Essence, Explore, Eliminate, Execute, has the clear “focus-flare” cadence of the Design Thinking toolbox’s Empathize, Define, Ideate, Prototype and Test. Essence sounds like Empathize, Explore sounds like Define, Ideate sounds like Eliminate and Prototype/Test sound like Execute to me.

In thinking about the message of focusing on what’s really important, I made a note in the margin on one page which said, “if it feels like I can do anything I want with my life, it’s ironic because I will in fact only do one of those things.” If that’s true, and I think it is, it would be better to figure out what that one thing is sooner rather than later lest I risk wasting a lot of my time on what turns out to be non-essential.

3/5

Review – The Acquirer’s Multiple

The Acquirer’s Multiple: How the Billionaire Contrarians of Deep Value Beat the Market (buy on Amazon.com)

by Tobias Carlisle, published 2017

I received a free copy of this book from the author.

I spend a lot more time thinking about the best way to introduce people to the world of value investing than I actually get requests for such information, though I do receive occasional requests for advice. The reason is not just because I am a pedantic thinker but because I spent a very long time acquiring my own knowledge on this subject, with many wrong turns and wasted efforts and I have always wondered, “Is there a better way?”

Toby Carlisle’s “The Acquirer’s Multiple” may just be that better way.

But first, let me explain the most up-to-date advice I have been vending, and keep in mind, this advice is not intended as “how to be a good investor/make good investments” because I am not a registered investment adviser nor would I attempt to impersonate one– this is just my opinion of “how best to learn about investing”. I think I can dispense that advice as an opinion without running afoul of the authorities because I am just talking about ways to acquire certain knowledge. At least I hope so!

My suggestion is to read the following titles, in this order:

  1. The Richest Man in Babylon: Now Revised and Updated for the 21st Century (Paperback) – Common
  2. The Millionaire Next Door: The Surprising Secrets of America’s Wealthy
  3. Buffett: The Making of an American Capitalist
  4. The Accounting Game: Basic Accounting Fresh from the Lemonade Stand
  5. The Essays of Warren Buffett: Lessons for Corporate America, Fourth Edition (or more specifically, Buffett’s Shareholder Letters from Berkshire Hathaway, and his private partnerships, available on the Berkshire website)

Perhaps at a later date I will spend some time writing a post explaining in greater detail why I recommend these resources in this order to an aspiring student of (value) investing, but for now I will simply say that the first two explain how to save and how to develop the psychological discipline and personal habits that permit one to save money, and you must have savings if you want to fuel an investment program. The second lesson is in inspiration, to study the life of the greatest master of investing in the modern era to understand both what is possible, and what it takes, to be great at investing. The third lesson is a rudimentary knowledge of accounting, “the language of business” because if you’re going to be investing in businesses you ought to have a clue what is going on.

Only then, young grasshopper, are you ready for your fourth (but not final) lesson, which is to learn the methods and principles of (value) investing itself. And I can think of no greater expositor of these principles than the great master himself once again, Warren Buffett, especially because you can read along as his company develops and see the wondrous workings of these principles in “real time”.

But even this can be an overwhelming introduction for a noobie who doesn’t realize what a deep pool they’re wading into in asking the question. For the action-oriented, then, I offer a 3-Point Plan of Investment Attack which includes:

  1. The Richest Man in Babylon
  2. The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Little Books. Big Profits)
  3. The 2013 Berkshire Hathaway Shareholder Letter, “Some Thoughts About Investing”

This short list will teach you how to save money so you have fuel for your investment machine, and then it provides the basic knowledge needed to decide if you want to be a humble Sunday-driver investor and do passive index investing, or if you want to be a more racy investor and pick your own businesses to invest in the way a true value investor would.

Pedantic as I am, where the heck does Toby’s book fit into all of this?! Well, I think now I can whittle my 3-Point Plan down to 2-Points: The Richest Man in Babylon, and The Acquirer’s Multiple. And I might be able to turn my original 5 item foundations into a 3 item list, using Richest Man, Accounting Game and The Acquirer’s Multiple as the set of texts. Here’s why.

Toby has done something incredible with this book. He has boiled a deeply studied, highly opinionated, multi-trillion dollar field of human endeavor down to its most essential, best researched and expertly practitioned concepts and he’s done it all in simple language that I am convinced even a complete neophyte would find approachable. He has included a number of delightful graphics that help to illustrate these simple concepts about how typical market participants behave and where investment value comes from that, for the first time in my life, I actually found increased my understanding of what I already knew rather than confused me (note: charts, data tables, etc., usually just distract me and I skip them, I am a mostly verbal knowledge acquirer). You really can’t go wrong jumping in this way.

The best part, however, is that he has curated some dramatic and action-packed biographical stories demonstrating how successful billionaire investors have put these ideas into practice. This checks the “inspiration” box I mentioned earlier because it helps the reader see how these ideas were translated into action and it gives confidence that you, too, could stand to benefit in this way.

And finally, he repeats (yes, the book is repetitious) all the neatly summarized concepts into one final summary list at the end of the book that involves 9 rules for a value investor to live by. I am confident that if a new investor referred to this list again and again at each point in his investment research and portfolio management process and asked himself, “Am I living true to this list?” he would be very satisfied with himself over a long period of time if his answer was “Yes”. And if the answer were “No”, then he’d understand exactly what he needed to do to get back on course.

I know Toby personally. He is a highly intelligent fellow, his passion for these ideas and the subject are intense and, if you ask me, he lands firmly in the “Graham” side of the “Graham-Fisher” spectrum of value investing (discussed a bit in the text) that all value investors and followers of Warren Buffett debate endlessly. And that is why I was so pleased that the conclusion of the book included an admonition to “check yourself before you wreck yourself”, so-to-speak. The Acquirer’s Multiple principle itself couldn’t be simpler, but Toby knows, as do all great investors in the Grahamian-tradition, that true risk lies in the behavior and biases of the investor himself, particularly an investor who can’t follow simple principles he knows to be true because he insists on trying to outsmart them.

Don’t try to outsmart what can be simple (though never easy!)… like reading 5 books on the art of investing when you could maybe get away with just two or three. And I am now convinced that Toby’s book should be one of them.

4/5







Notes – What Is Jobs To Be Done (JTBD) Theory?

Several months ago, a friend of mine introduced me to “Jobs To Be Done Theory” (JTBD) via the free work of an entrepreneur named Alan Klement called When Coffee and Kale Compete. The JTBD framework is part of a growing base of entrepreneurial knowledge in the innovation space with key similarities to things like disruptive innovation (The Innovator’s Dilemma by Christensen) and Design Thinking practice. These approaches to entrepreneurship focus on empathy as a methodology for understanding the psychological motivations and needs of a potential customer rather than on their demographic characteristics or profile data. Solutions are designed to help the customer make progress rather than being built around features or functions; in this way business people might be surprised to find out that “coffee” and “kale” can be competitors in helping a person make progress on “get my morning started right”, whereas in the traditional product design space an entrepreneur might be more focused on “how to build a better cup of coffee for 18-35 year old women.”

As Klement says in the introduction,

I want to help my customers evolve themselves. I shouldn’t study what customers want in a product. I need to study why customers want.

He describes a JTBD as consisting of three elements:

  1. job is your struggle to make a change for the better
  2. The to be part denotes that overcoming that struggle is an evolutionary process; it happens over time
  3. The change is done when you overcome that struggle and have changed for the better; there are things you can do now, that you couldn’t do before

These jobs originate inside people, not inside things. They have to do with motivations or states of mind, that is, they are psychic not material in nature. And there are many potential strategies for helping a person to accomplish that transition from one state to another, which is why it is possible to envision disruptive solutions that redefine the categories by which product or service competition occur.

Klement helpfully summarizes some principles of JTBD theory:

  • Customers don’t want your product or what it does; they want help making their lives better
  • People have Jobs; things don’t
  • Competition is defined in the minds of customers, and they use progress as their criteria
  • When customers start using a solution for a JTBD, they stop using something else
  • Innovation opportunities exist when customers exhibit compensatory behaviors
  • Solutions come and go, while Jobs stay largely the same
  • Favor progress over outcomes or goals
  • Progress defines value; contrast reveals value
  • Solutions for Jobs deliver value beyond the moment of use
  • Producers, consumers, solutions and Jobs, should be thought of as parts of a system that work together to evolve markets

He works through a number of case studies to illustrate these principles. The methodology in each case study focuses on interviewing customers to get verbatims about how they reason about what problem they’re trying to solve and what solutions they’ve tried in the past and present. The emphasis is on revealed preference, determined by actions, rather than stated preference, determined by marketing surveys or hypothetical scenarios. By unpacking these statements rather than making assumptions, the entrepreneur can work to understand the mindset of the customer and how he sees himself struggling to make progress in a particular part of his life.

Klement later discusses two well-known case studies in the disruptive innovation literature, Kodak and Apple (iPhone vs. iPod), and reinterprets the story through the JTBD framework. With this, we see that Kodak’s business was annihilated not because they were complacent and didn’t see how technology would make their product irrelevant, but because their focus was on optimizing a particular solution (traditional film) for a particular JTBD rather than focusing on that JTBD itself and trying to ask what is the best way to help customers make progress on that in light of changing technology. In contrast, Apple took a very profitable product, the iPod, and thought about what kind of job it was fulfilling and what was a better way to do that job, the iPhone, rather than thinking about how to build a better iPod. This is because “no solution for a JTBD is permanent.”

One thing I found challenging in trying to digest this new framework was identifying the JTBD itself. Klement offers a few guidelines for deciding if you do NOT have a JTBD defined properly:

  • Does it describe an action?
  • Can you visualize somebody doing this?
  • Does it describe “how” or “what” and not why?

If the answer is yes, it is likely not a JTBD because JTBDs are emotional and represent psychic states. They are ways people experience their own existence and how they progress from one state of existence to another, they are not the thing that makes the progress themselves. Sometimes these JTBDs are exceedingly obvious. But a lot of the time, they’re subtle and can only be defined with confidence after a long, empathy-driven process of interviewing and conversing with customers to better understand what they think they’re trying to do. This is hard work! The JTBD framework is certainly not a quick or easy fix to the dilemma of how someone with an entrepreneurial bent can design great new products and services that meet peoples needs.

The book is chock full of case studies and deeper explanations of the basic components summarized above. I highlighted and underlined various meaningful passages that I won’t bother typing into these notes because they’d be too out of context to add clear meaning to a reader; besides, I read this book earlier this year and didn’t get to write up my notes until now, so I can’t even remember with some of them why I found them impactful at the time.

Alan Klement offers free consultation services and aspires to help people on a paid basis as well. I have spoken to him a number of times as I have read his book and attended the Design Thinking Bootcamp to share thoughts and ideas about the JTBD framework, especially as it applies to personal design challenges I am exploring in my own business. He informed me that he is working on a revised and re-organized 2nd edition which he plans to release soon. I will likely revisit the book then and consider publishing further notes and thoughts about the JTBD framework as I become more familiar with it and even work to use it in my own design challenges in the future.


Notes On Reading With Our Little Lion

The Wolf and I have been a bit negligent about reading with our Little Lion to date. When he was just out of the womb, I spent the first few weeks of life reading through “Our Oriental Heritage” from the Story of Civilization series, while the Little Lion and the Wolf breastfed to sleep. We made a lot of progress– we got through all of Ancient Egypt and most of the Mesopotamian cultures, through to Persia. I think we stopped right around Ancient India.

Many things got in the way when we set the book down and forgot to come back to it, not just one thing. But the most important reason in my mind is that it seemed like our Little Lion developing his other skills and capabilities was more important than trying to read every day. Eating, sleeping, walking (me + stroller + doge), rolling and crawling, etc. Reading was one more thing that seemed to have limited benefit on a relative basis.

I know all Good Parents read to their kids everyday, even when they’re not paying attention or can’t sit still on their lap. I also know all Good Parents do Tummy Time. We didn’t do Tummy Time. And we didn’t read to our Little Lion every day. So we might not be Good Parents. We’ll see.

One thing we do with our Little Lion is we talk a lot. We listen to music. We have adult conversations with one another, using adult words, and with our Little Lion, using adult words. We talk about our emotions and we don’t hide from him when we aren’t getting along with ourselves, each other or other people. His home is partially bilingual (trilingual… but I can’t seem to catch a break on getting that third language spoken more frequently than the second!) so our Little Lion is getting a lot of exposure to language.

The Wolf and I are big readers. Even if we’ve been negligent so far with our Little Lion, he will have no questions about whether he’s living in a literary household. Some day he’ll read our reviews on this blog, and hopefully contribute his own! He will see the Lion and the Wolf reading all kinds of things, nearly every day, often for long stretches of time. If he grows up hating books, I don’t think it will be because we didn’t do a lot of story time for the first ten months of his life.

That being said, our Little Lion seems like he’s able to get some benefit from being read to now and seems like he can actually enjoy the interaction actively. So we’re diving in a bit on this one now, reviewing potential titles to add to his library. We’re also thinking about principles for selecting books for reading and principles for how to benefit from reading together. Here is what we have thought about so far.

Principles for Selecting Books

  • Avoiding fantasy themes until much older; no books that depict characters or events which could not possibly be witnessed in real life
  • Emphasizing characters, events, animals, natural environments, that our Little Lion has a good chance of experiencing in his present location; there is plenty of time, as he develops and over the course of his reading career, to explore places and things beyond “home”
  • Emphasizing people, emotions and simple story lines with vivid images (real, or highly realistic is fine)
  • Action emphasized over values and meanings, though values and meanings we agree with are okay (things we’re not okay with: PC culture, sharing is caring, collective inclusion and individual exclusion, embedded authoritarian messaging)
  • Baby-centric narratives are okay for now, but modeling relationships and older people is okay, too
  • Questionable– “fairy tale” type stories like Aesop’s Fables. The Fables characters are animals, who usually talk, the emphasis is on the lesson and the action, not the talking animal, but the animals could easily be retold as people to make the stories useful
  • You can’t know if every book is appropriate ahead of time, it might take flipping through a copy at a book store or actually trying to read it after buying it to figure out it’s a joke

Principles for Enjoying Reading Time Together

  • Try it when everyone is well rested
  • Okay to read “the same thing” over and over, especially if baby chooses to do so; it’s new to them!
  • There’s more to story time than being read to or following the story; touching, looking, making noises, tasting, etc. are all part of the experience
  • If baby doesn’t want to sit on the lap and read actively, he can be read to “passively” while he plays, crawls, etc. in a safe space nearby
  • The adults can read “children’s books”, or read their own books that fall within these guidelines (actually much more likely with an “adult” book), whatever they’ll be interested to read with the child
  • Act it out and get animated if you like; tell a good story!
  • Use the book as a prop to tell a different story if you like, especially if it has limited text and can be easily modified
  • Talk ABOUT the book as much as you READ the book; discuss what’s going on, see what baby is reacting to, ask baby questions about the story; as baby gets older, you can both evaluate what you read afterward, and do critical reviews of “joke” books you’re sorry you read
  • Read baby history and the classics when desired (we’ll be working our way back through the Story of Civilization, and through some Shakespeare as well)
  • Don’t feel compelled to finish any book you start or to stop baby from “interrupting”, let baby do what they will and work with it; if it’s too distracting, try story time another day; the goal is to be together, not to “read” together
  • Understand that reading to “passive” baby is a specific activity and shouldn’t replace actively observing baby’s playtime or come to dominate such interactions

Beyond this, we’ll be treating it like a science experiment and expecting a lot of learning from failure!

Review – Shoe Dog

Shoe Dog: A Memoir by the Creator of Nike

by Phil Knight, published 2016

What can we learn from business books, especially business biographies?

I used to laugh about this with a friend a considerable amount– all these dopey books about businesses, business men and business secrets, written by ghost writers and know-nothing journalists (hack writers), developed for and marketed to mass audiences who want an entertaining dream and not an edifying edifice to stare at imponderably.

We would be amazed at how absent these books were of any meaningful details, in fact, precisely the meaningful details necessary to actually understand what was going on and “how’deedodat?” It was like some kind of conspiracy of incompetent stupidity, to write books about business without margins, without tax rates, without rates of return on capital, without the capital structure outlined and revisited periodically as an enterprise grew, without definitions of risk and explanations of strategy.

Instead, lists of names, dates, places. Stylized depictions of tragedy and success. Cliched, retrospective business wisdom, as if the hustler-entrepreneur thought in any terms other than pure, maddening survival or unbridled, sociopathic dominance of everyone around him. Overlooking special revenue or R&D relationships with governments that were critical to a firm’s mastery of its market or early survival, or ignoring impolitic questions of how the founder avoided getting swept up in the local social conflagration du jour and being drafted out of existence.

To this mish-mash of storytelling sins this book adds a new one, anachronistic language. Somehow, Nike/Blue Ribbon was a “startup” before startups in the 1960s (and even into the 1970s, when it had been around for almost a decade… just getting going, really!) and one of the guiding philosophies of Knight and his “Buttface” crew (more on this in a bit) was to “fail fast”, nearly five decades before the software development revolution convinced the business world that iterative testing and quick trial to failure was the right way for all businesses to grow and not just a specialized niche that could essentially emulate A/B variants of its product or service offering at no cost or risk with the simple push of a button. But yeah, the shoe makers were doing that back when Vietnam was a thing.

That is why I read “Shoe Dog” with skepticism and found myself lusting after a critical beatdown as I turned the pages. A 25 year-old Phil Knight travels to Japan and secures a distributorship for a top Japanese athletic shoe, quite by chance and without any explanation of how he surmounted the language barrier in post-war Japan, then proceeds to tour the globe for four months by himself as some kind of backpacker-type tourist while his order samples, presumably, sit and wait for him the whole time? This is the beginnings of what would become Nike. And it went just like that.

Yeah, right.

The book is full of these glaring contradictions. Knight wanted to avoid the standard, stultifying corporate life, so he built a massive corporation. He believed in playing it straight as he advised his Eagle Scout nominees, so he lied to his financiers and production partners to grow his business. He never had enough cash to keep the bank happy and grow the business organically, so he bought himself a nice home and took the team on bi-annual corporate retreats to luxurious places (the book suddenly introduces this information about 12 years into the company’s history, where it is also revealed that they endearingly refer to one another as “buttfaces”, somehow demonstrating their open and transparent corporate culture). His co-founder fools him into giving majority control of the enterprise at the time of founding, then gives him 2/3rds of his share when trying to retire without fuss or challenge.

What “Shoe Dog” taught me, then, is that I’ve been naive to think there is anything esoteric one can learn from business books like this. It is my mistake for coming to a mass market piece of media and expecting to hear an honest telling, or even an interesting one. These books are written to entertain, glorify the egos of those who they are written about or nominally by, and perhaps even to some extent to distract, delude or otherwise throw off of the scent the would-be competitors who read them.

Reading between the lines, Knight was an alcoholic. He was clearly unscrupulous and at times cruel in his dealings with others. He did not spend the time with his family that they wanted from him. He lied, consciously, to his business partners and financiers. And he sued and counter-sued to stay in business or gain advantage. He did some other stuff, too, but these are the kinds of things that seem to set people apart, alongside luck. Some people play by the rules, either legally or their own conscience or both, and some people find ways to stretch these factors or simply break them without regret. Those people go on to be billionaires. And they have an incentive to lie about what they did and how they did it because after all, lying is what got them there in the first place.

You will never know how a business was really built by reading a book about it. And you would probably never find out even if you were a friend of the founder. You may not even be clear on what happened if you were inside the company itself. It’s too complicated and there are too many human factors involved that lend themselves to obfuscating the truth, if it can even be remembered.

One thing I learned from “Shoe Dog” is it’s my own fault if I keep reading this stuff and find myself frustrated at being anything but entertained.

3/5

Review – The Intelligent Investor

The Intelligent Investor: A Book of Practical Counsel

by Benjamin Graham, published 2006

What follows are the notes from my third (lifetime) re-reading of Graham’s classic investment treatise. I had planned to re-read this book after a market sell-off, but I realized this was a futile act of meta-market timing self-delusion and decided since I was interested in it I should just re-read it now. I am glad I did!

Introduction

Developing knowledge about past market experience with stock and bond investments is key to intelligent investment; surveying the past with its ups and downs not only makes the future more predictable but helps to create a rational baseline for our own expectations about what is possible with our investment portfolios. Experience shows that enthusiasm almost always leads to disaster. Market conditions can reward, on a relative basis, a passive versus an active approach– sometimes the effort to reward ratio of active management is not worth the trouble.

The investor’s chief problem is likely to be himself. Mastering oneself is a necessary part of mastering one’s investment program.

The future is uncertain. Nonetheless, we must act on the assumption that sound principles will see us through a variety of conditions over time, just as they have in the past.

Chapter 1

In most periods of market experience there is a “speculative factor” in common stock prices due to the enthusiasm of the marketplace. We must keep it within limits and be prepared for short and long-term adverse results in terms of both financial and psychological experience whenever this speculative factor is present. Acknowledging this reality, it’s extremely important to keep speculative and investment positions in separate accounts and never to let them mingle financially or in our thoughts.

Better than average results require promising prospects (in terms of risk versus reward) and a lack of popular following of certain portfolio holdings when purchased.

Chapter 2

There is no close, time-causal relation between inflationary or deflationary conditions and stock earnings and prices (likely because of Cantillon effects). Earnings rates have shown no general tendency to advance with wholesale price increases. The best result to expect from one’s investment program over long periods of time is approximately an 8% per annum return from a combination of dividends and price increases.

It is the uncertainty of the future that makes the lack of diversification (between common equity and cash/fixed income in a portfolio) folly. At one extreme, one might allocate 25% to stocks and 75% to cash or fixed income, and at the other extreme the inverse. The “happy medium” is 50%/50% between the two. Never should one have 100% of one’s capital in stocks or cash/fixed income– the former suggests an irrational optimism about the future and a total disregard for the risk of adverse conditions, and the former suggests an overly pessimistic view that has given in to the unknowable temptation to time the markets.

Chapter 3

Rather than try to time the market, it is more important to follow a consistent and controlled common stock policy and to discourage the impulse to “beat the market” and to “pick the winners”. The work of a financial analyst falls somewhere in the middle of a mathematician and an orator, in that he must be exact where he can, and qualify where he can’t.

Chapter 4

The rate of return sought from one’s investment portfolio should be dependent upon the amount of intelligent effort one is willing (and able) to bring to bear on the task. Passive indexing requires the least intelligent effort and should bring the lowest return expectation; active value strategies entail the most intelligent effort and should have commensurately higher return expectations.

Long experience shows that the average investor should stay away from high yield (junk) bonds. Experience also teaches that the time to buy preferred shares is when prices are depressed by temporary adversity.

With every new wave of optimism or pessimism, we are ready to abandon history and time-tested principles, but we cling tenaciously and unquestioningly to our prejudices. This is a bias of human psychology which must be overcome if one is to have a successful long-term investment record.

Chapter 5

Common stocks have an added degree of security when the average dividend yield exceeds the yield over that which can be obtained from good bonds.

Rules for common stock portfolios for the defensive investor:

  1. Minimum of ten different issues
  2. Large, prominent and conservatively financed companies
  3. Long record of continuous dividend payments
  4. 25x past 7yr average earnings (4% earnings yield) and 20x LTM earnings, at a maximum

Experience shows that large, relatively unpopular companies offer a good hunting ground for the defensive investor to search in.

Chapter 6

Avoid inferior bonds and preferred stocks at prices greater than a 30% discount to pay value; never buy yield without safety. Owners of foreign debt issues have limited legal recourse, which increases their risk. IPOs can be good purchases… years after the fact, at small fractions of their true worth; let others make the quick profits and experience the harrowing losses of recently issued stocks.

Chapter 7

Danger lies in market/public price enthusiasm outstripping earnings growth. Confidence in your investments is a function of proximity and control.

There are 3 primary sources of selection for the enterprising investor’s portfolio:

  1. Large, out of favor companies due to temporary developments; large companies are safer than small companies because they’re more likely to weather the storm; always judge average past earnings, not LTM
  2. 50% discount to BV or greater, due to currently disappointing results or protracted neglect/lack of popularity
    1. require reasonable stability of earnings over past decade
    2. no earnings deficit in the company’s history
    3. sufficient size and strength to meet possible future setbacks
    4. NCAV bargains are safe and profitable method for finding bargains
  3. “Special situations”

The reasons why bargain issues lead to good performance:

  • dividend returns are relatively high
  • reinvested earnings, which are substantial relative to price paid (BV grows rapidly)
  • bull markets are more generous to low-priced issues
  • specific factors contributing to poor earnings may be resolved in the interim

One must choose to engage in either active (enterprising) or passive (defensive) investing, there is no room to do both without becoming speculative in one’s thoughts and actions, ie, can’t be “half a businessman”.

Bargain pricing territory begins at 66% of appraised value, as a return to 100% or fair value indicates a 50% potential upside at purchase price.

If you can control a company, you can safely pay closer to fair value for it.

The investor’s choice as between the defensive or the aggressive status is of major consequence to him and he should not allow himself to be confused or compromised in this basic decision.

Chapter 8

Investment formulas are ephemeral and their popularity is their undoing. Rather than market timing, commit to proportional exposure to stocks and cash/fixed income. Every investor who owns common stocks must expect to see them fluctuate in value over the years. Most holdings will advance as much as 50% above the lows, and fall 33% from highs, so set your expectations accordingly.

The virtue of the proportionality formula is that it gives the investor something to do; often it is the inability to sit still and the propensity to tinker that leads to risky novelty. Ironically, higher quality common stocks have more of a speculative element in their price which contributes to their volatility; it is their very popularity and perceived safety which invites unscrupulous risk-takers to dabble in the trading at the margin where the price is set.

Stocks bought closer to book value allow for greater detachment from price fluctuations. Try to be in a position to buy more, including what you already own, when prices fall, assuming value remains in tact. The stock market is often wrong, far wrong, creating opportunity for courageous and alert investors.

All business quality changes with time, sometimes for better and sometimes for worse. Everything is a trade given circumstances and time. Allowing unjustified price action in one’s holdings to influence one’s actions is to turn the basic advantage of liquidity into a disadvantage. True investors see price fluctuations one way: as opportunity to buy what is cheap and sell what is dear. Therefore, the litmus test for investment versus speculation is this, Do you try to anticipate and profit from market fluctuations, or do you look for suitable securities to acquire and hold at suitable prices?

Good managements produce good average market prices and bad managements produce bad market prices.

Chapter 10

Businessmen seek professional advice on various elements of their business, but they do not expect to be told how to make a profit; investors must be similarly responsible.

Chapter 11

The behavior of a security analyst includes:

  • examine past, present and future of a security
  • describe the business
  • summarize its operating results and financial position
  • explain the strengths and weaknesses of the business, its possibilities and risks
  • estimate future earnings power under various assumptions
  • compare companies, or the same company at different times in its history
  • provide an opinion as to the safety of the security

The more dependent valuation is on an assumption about the future, the more vulnerable that valuation is to miscalculation and error.

When evaluating corporate bond safety, judge it by the total interest charges as a multiple of past average earnings (7yrs) or against the “poorest year” of earnings.

No one really knows anything about the future. A company with a high valuation for good performance is already getting a premium for good management, don’t double count management value separately.

One test of quality is an uninterrupted record of dividends going back a number of years. Dividends can’t be forged.

The multiple on earnings is an implied growth rate, pay attention to this fact. There is no way to value a high growth company in which the analyst makes realistic assumptions of both the proper multiple for current earnings and the expected multiple for future earnings.

An analyst can be imaginative and play for big profits as a reward for his vision (entrepreneurship) or he can be conservative and refuse to pay more than a minor premium for possibilities as yet unproved; but do one or the other.

As an exercise, do a valuation based on past performance and another on expected future performance and compare the two. This can be beneficial because it:

  1. provides useful experience
  2. creates a record of the experience (allowing for self-evalution)
  3. may lead to improved methods of analysis in examining the record

Chapter 12

Don’t take a single year’s earnings seriously, it’s too easy to fudge the numbers with special charges and one-off items. Sometimes large losses in the past create tax advantages which boost earnings unfairly in the present, so remember to adjust earnings for the average tax impact. Using average earnings smooths out special charges and other one-time items which is another reason to use an average as it reduces the work of trying to “normalize” earnings over time.

Chapter 13

High valuations entail high risks.

Chapter 14

You should reject from your consideration companies which:

  • are too small
  • have a relatively weak financial condition
  • have a stigma of earnings deficit in their 10 year record
  • do not possess a long history of continuous dividends

There is an absence of safety when too large a portion of the price is dependent on ever-increasing future earnings. Stock portfolio earnings overall should be at least as high as the rate on high grade bonds.

Even defensive portfolios should be turned over occasionally, if a holding has seen excessive advance and this is a more reasonably priced issue available. It’s better to sell and pay the tax than not to sell and repent the foregone profits.

Do not be willing to accept prospects and promises of the future as compensation for the lack of sufficient value in hand. Leave the “best” stock alone, instead emphasize diversification more than individual selection. If one could select the best unerringly, one would only lose by diversification.

Chapter 15

There are extremely few companies which have been able to show a high rate of uninterrupted growth for long periods of time; conversely, remarkably few of the larger companies suffer ultimate extinction. Competitive advantage in investing lays in focusing one’s efforts on the part of the market systematically overlooked by everyone else.

When Graham owned net-nets, he owned about 100 at a time– “extreme” diversification.

The Graham-Newman playbook included:

  • self-liquidations and related hedges (performed well in bear markets)
  • working-capital bargains (NCAVs)
  • a few control operations

The right time to buy a cyclical enterprise is when:

  1. the current situation is unfavorable (macro)
  2. near-term prospects are poor
  3. the low price fully reflects the pessimism of the market

When browsing the stock guides for opportunity, look for the following characteristics:

  1. P/E of 9x or less
  2. financial condition
    1. current assets >= 1.5x current liabilities
    2. debt <= 1.1x net current assets
  3. earnings, no deficit in the last 5 yrs
  4. some history of dividends
  5. earnings growth, last years earnings > 5 yrs ago
  6. price < 1.2x BV

You can use ValueLine, stock screeners or Google Finance-linked GSheets to filter.

If you were to use a single criteria to pick stocks, two items have worked successfully in the past:

  1. important companies (S&P 500) trading at a low multiplier
  2. a diversified list of net-nets have performed “quite satisfactorily”

When the going is good and new issues are readily saleable, stock offerings of no quality at all make their appearance.

Special situations are the realm of the pro and require focus and dedication to yield results. Do not do them as one-offs.

Chapter 16

The addition of a conversion privilege on a security betrays the absence of investment quality.

Chapter 17

If a company pays no taxes for a long time, it throws into question the validity of reported earnings. Watch out also for “channel stuffing” of special charges into a single year on the income statement.

Chapter 19

When to raise questions with management:

  • unsatisfactory results
  • results which are poor compared to competitors
  • long discrepancy between price and value

As a rule, poor managers are changed not by activism, but by a change of control.

Dividends can be valuable to the owner of a poorly-run company because they allow some value to escape from the clutches of bad management.

There is no reason to believe expansion moves by a bad management will deliver anything other than more poor results.

Chapter 20

The function of the Margin of Safety is to render unnecessary an accurate estimate of the future. In stocks, the Margin of Safety lies in the expected earning power being considerably above the going bond rate. Chief losses come from low quality businesses bought in favorable times. Margin of Safety is totally dependent on the price paid; it is largest at one price, smaller at another and non-existent at a third.

The insurance underwriting process can be thought of as Margin of Safety applied to diversification of bets.

There is no Margin of Safety available in staking money on a market call.

There is no valid reason for optimism or pessimism of the continued function of quantitative methods of analysis.

The Margin of Safety is demonstrated by figures, persuasive reasoning and reference to actual experience.

Do not try to make “business profits” out of securities unless you know as much about their value as you’d need to know about the value of merchandise you proposed to manufacture and deal in. Do not enter into an operation unless a reliable calculation shows it has a fair chance of a reasonable profit. Stay away from situations where you have little to gain and much to lose. Have courage in your knowledge and experience; act on your judgment even when it differs from others. Courage is the supreme virtue when adequate knowledge and tested judgment are at hand.

To achieve satisfactory results is easier than most people realize; to achieve superior results is harder than it looks.

Postscript

One lucky break, or shrewd decision, may count more than a lifetime of journeyman efforts; but those efforts — preparation and disciplined capacity — are what expose you to the good fortune in the first place.

The Superinvestors of Graham-and-Doddsville

Think always of price and value.

With a significant Margin of Safety in place, something good might happen to me.

Size is the anchor of performance.

Always buy the business, not the stock, mentally speaking.

The greater the potential for reward, the less risk there is.

Don’t make easy things difficult.

Potential for profit will exist as long as price and value diverge in the market.

5/5

Thoughts on Constructing A Library

I am going to jot a few notes on the subject of library (as in, personal book collection, not edifice) construction that I’ve been considering lately.

When reading stories of intellectual and political figures of the past, such as Thomas Jefferson or Napoleon Bonaparte, I realized that possessing a substantial library of works of interest and fame was part of standard operating procedure for literate men of the past. When I say substantial, I am talking about private collections numbering ten to twenty-thousand individual hardbound volumes, or when traveling, taking one or two trunkloads of books with the traveler to aid in research and study.

It’s a pretty different commitment to book warehousing and travel from having a few shelves of things you’ve read, or grabbing a couple books and stuffing them into your suitcase for an upcoming flight. Even in the age of Kindle, it’s akin to having a multi-gigabyte device dedicated solely to storing your library.

I haven’t kept track of how many books I’ve read so far in my life, and it’s not exactly apples-to-apples to include childhood picture books in the same measure as thousand page social philosophy treatises. But even if you excluded everything I read before age 19 or 20, which is probably the point in my life where I got “serious” about reading and was mostly reading non-fiction for information and analysis rather than fiction to pass the time or have my imagination stimulated (although, like many teenagers, I did manage to consume Atlas Shrugged during this “non-serious” period), I would still feel comfortable saying the number is “thousands”, especially if you include partially read titles. Probably less than five thousand, but definitely more than one thousand.

I don’t have most of those titles in my possession. Over the last seven or eight years, I consumed many works (especially about business, investing or economics) digitally, and over the last two years I have become an active “purger”, selling, donating or simply tossing books I didn’t bother to read, didn’t bother to finish or didn’t think I’d get any additional value out of in owning them. Most of what is on my shelf at home right this moment are either unread-waiting-to-be-read, or read-and-coming-back-to-them titles. I guess you’d call the latter “reference” titles, but I actually have few reference titles and I mean more of the idea of doing a full-reread to see how my understanding and appreciation of what I previously deemed a worthy title has changed as I’ve changed.

I wonder if purging is a good approach for a few reasons. One is that I have a child now, and hope to have more. I like to think I’ve spent a lot of time reading and sorting knowledge contained in books and I’ve wasted my time on many in order to find the few quality gems, the essential titles in some field that can quickly give one a nuanced understanding of the major and minor issues alike in some discipline. This time I’ve invested is a sunk cost, and being able to hand over a ready-culled library of the “classics” and “greatest hits” to my children and grandchildren seems like part of the social capital of our family.

A problem I have with this logic is that I found a lot of these books by exploring specific questions I had prior to reading them. I arrived at the good stuff through a meaningful epistemological journey that probably would not be as valuable or even as coherent as it was if I had leapt straight from my starting inquiry to the most elucidated truth in the best book. I had to fight for the knowledge I came by and do my own hard thinking and analyzing as I went. Handing someone a ready-constructed library of “essential knowledge” lacks context and it also lacks respect for their own curiosity.

Similarly, as the RIE-philosophy of infant care-giving reminds us (I think derived from Montessori), when you teach a child something, you take away forever his chance to discover it himself. There’s something cognitively valuable in the act of discovery that inheriting a library might obviate.

On the other hand, “on the shoulder of giants”… so perhaps my issue will see farther than me if they start not at the starting line, as I did, but far beyond the finish line in another race entirely.

Another problem with purging is that we are quickly losing a sense of literary history and context with the rise of Google and Amazon. With Google, we convince ourselves that anything worth knowing can be easily searched for, and that it isn’t important to understand the source or genesis over time of certain ideas, only what the latest conclusions are. With Amazon, we come to understand the literary universe as being composed of recently published, hot-selling titles (usually rehashes of old ideas, reformulated for the latest audience fad or interest) and a few older works deemed “classics” because they don’t manage to offend anyone. There are literally hundreds of thousands of titles people used to read, adore and consider categorical in their respective field that aren’t in print and that are essentially invisible to modern readers unless you know what to look for. There are also thousands of titles that reflect the losing side in a historical conflict, of ideas or arms or otherwise, that are not considered “truthful” simply because that side lost. Those are perspectives worth thinking about still if one wants to hone one’s critical mind and maintain a level of scientific objectivity in one’s thinking.

So I worry that some of the great stuff I’ve come across, my children will simply not see if I don’t keep it in my library for them. Especially if they are about ideas I think are important and honest, but which end up “losing the battle” during our lifetime and become non-PC. Down the memory hole!

Storing all these books has an economic cost. There is also search costs in looking through them when seeking a title out if they’re too numerous. And while I’ve spent tens of thousands of dollars on books over the years, I’ve mostly acquired paperbacks. I wonder if these are durable and can stand the test of time.

I am currently not resolved on the question of “To construct a library for myself and my posterity, or not?” One thing I do know, is that there is something wrong with a home (or office!) that contains no books, or that contains only books selected by others and not by oneself, or received for promotional reasons alone. It would be a major mistake to raise children in a place where books weren’t an ever-present part of their surroundings, even if the total quantity and methodology of selection behind the “library” remains in a negotiated state.